A large group of financial services organizations is facing off with a big property-casualty trade group over whether Congress should give insurers the option of choosing between state and federal oversight.[@@]
The 135 financial services groups and companies that belong to the new Optional Federal Charter Coalition sent a letter Monday to the Senate Banking Committee that emphasizes the benefits of creating an optional federal charter.
“Consumers, and the insurers and insurance agents that serve them, need a modern insurance regulatory system that provides greater product choice and portability,” the Optional Federal Charter Coalition says in the letter, which went to all members of the Senate Banking Committee.
Today, under the current state-run insurance regulatory system “the burden of having to comply with rules from 56 separate insurance regulators is too inefficient for companies, agents and consumers to manage, especially those whose interests are national in scope,” the coalition writes. “Individual state regulators cannot speak to our national or global interests with the same scope and effectiveness as a strong, federal entity, such as the U.S. Department of Treasury or the Federal Reserve.”
Letting insurers and agents choose between state and federal regulation would create a system similar to the dual-banking system that has been in place for banks for more than 140 years, the coalition writes.
But “establishing an optional federal charter would not supplant state regulation or state premium taxation, the coalition writes.
Coalition members include the American Council of Life Insurers, Washington; the American Bankers Insurance Association, Washington; several large property-casualty trade groups; and many insurers.
Some of the life insurers on the list of OFCC letter signatories are John Hancock Life Insurance Company, Boston; Massachusetts Mutual Life Insurance Company, Springfield, Mass.; Northwestern Mutual Life Insurance Company, Milwaukee; Phoenix Companies Inc., Hartford; Principal Financial Group Inc., Des Moines, Iowa; Prudential Financial Inc., Newark, N.J.; and Sun Life Financial Inc., Toronto.
But a major property-casualty trade group, the Independent Insurance Agents and Brokers of America, Washington, argues that a federal charter option is still “not the best or right solution for regulatory reform in the industry.”
“While the letter leaves the impression that many insurance companies support federal regulation, it has been our experience that the vast majority of insurance companies, and an overwhelming number of agents and brokers, oppose an optional federal charter for the insurance marketplace,” says Charles E. Symington Jr., Big I senior vice president for government affairs and federal relations.
Although the proponents of the optional federal charter concept say it would not supplant state regulation, the Big I believes “such an occurrence would be inevitable, to the detriment of consumers and producers,” Symington says.
The debate about the optional federal charter concept is occurring days before the first hearing this year on an alternative regulatory reform initiative, an effort by the staff of the House Financial Services Committee to draft the proposed State Modernization and Regulatory Transparency Act, which could create “federal standards” for state insurance regulation.
The House Financial Services Committee will hold a hearing on the proposal Thursday, and some say a SMART bill could be introduced before Congress leaves for its annual August recess.
Robert Hunter, a former Texas insurance commissioner who now is director of insurance at the Consumer Federation of America, Washington, says the OFCC initiative could turn out to be “the death knell for SMART.”
Hunter opposes SMART, and plans to speak against it at the House hearing Thursday, primarily because he believes it undermines consumer protection.
Hunter says the OFCC letter is pulling the rug out from under Rep. Mike Oxley, R-Ohio, chairman of the House Financial Services Committee, a key advocate for the SMART Act initiative.
Because Oxley has said he could never support an optional federal charter, the letter “is a slap of Rep. Oxley after 8 weeks of work on SMART,” Hunter says. “The timing is atrocious. It sounds like, ‘We work with you for 8 weeks, and then we slap you in the face.’ It is remarkable.”